Highlights
- Daily operations were successfully adjusted to ensure business continuity and safety under Covid-19 conditions. New solutions have been introduced to ensure uninterrupted client services and to continue transforming the operating model.
- During the last months, client activity rebounded to pre-Covid levels. The number of active customers reached 314 thousand clients as of 30 June 2020, 12% growth y-o-y.
- EUR 185 million issued in new loans to Baltic private, SME and corporate customers.
- Baltic deposits continued to increase by EUR 210 million in H1 2020, 11% growth vs. year-end 2019.
- Defensive measures in place through tail-risk insurance strategy to protect against a sharp and severe recession.
- The Bank continues to operate with strong capital and liquidity ratios and expects a second half with improved financial performance.
The economic environment in 2020 has been extraordinarily challenging as the Covid-19 pandemic plunged the global economy into a sudden and very sharp recession. Citadele has taken substantial precautionary measures to protect the Bank’s employees, clients and partners, and implemented a series of actions to minimize disruption to the Group’s operations during the Covid-19 outbreak.
By the second half of Q2, the Baltic countries continued the gradual re-opening and easing of restrictions, and so did Citadele. Operationally, it means that Citadele retail branches switched back to full-service mode for walk-ins with new safety measures in place, ending the “visit by appointment only” principle. Employees have returned to the office with teams rotating weekly to ensure business continuity and safety. Remote customer services such as Sky Branch, mobile and internet banking continue to be available and widely utilised by customers.
Continued support to clients
Citadele continued its support of customer needs through advisory services, creative lending solutions, and active participation in government guarantee schemes to help clients in short-term financial difficulties. The number of requests for grace periods on loan repayments has remained comparatively low, pointing to the relative confidence of Citadele’s clients in successfully overcoming the adverse impacts of the pandemic.
The Bank’s sales teams continue to maintain close cooperation with clients, thus ensuring portfolio quality and maintaining low overdues. There have not been any major changes in the underlying credit quality apart from exposures in sectors that were the most affected, such as hospitality. In this sector, there has been intense work with each client to find the best solution going forward, including additional equity injections, upfront interest paid and refinancing to other banks.
EUR 185 million issued in new loans to Baltic private, SME and corporate customers
The total loan book has declined during this period of uncertainty, mainly due to portfolio amortisation and lower levels of new lending. A positive trend was seen in June results, where new lending increased by 42% month-over-month, with the Corporate portfolio seeing a healthy pipeline going forward. New lending to Baltic private, SME and corporate customers reached EUR 185 million in H1 2020.
Strong progress continued in deposit gathering, where the Group increased Baltic deposits by EUR 210 million during H1 2020. Total customer deposits increased by 11% since year-end 2019 and reached EUR 3,652 million.
Innovations and development
In Q2 2020, work was accelerated on digitalization of the Bank’s services. Customers in Latvia now get instant individual offers from Citadele for mortgages and consumer loans via digital channels, and a customer self-service tool has been launched in the Bank’s webpage. Work is performed to bring the same capabilities to our clients in Lithuania and Estonia.
Strong client base
There was a small slowdown in overall active customer numbers in Q2 2020 (decrease by 1% q-o-q). The positive trend in customer activity resumed in the last months of Q2, and the number of new customers onboarded started to increase. Active customers reached 314 thousand clients as of 30 June 2020, or 12% growth y-o-y.
Mobile App users and Internet bank customers increased by 37% and 8% y-o-y, respectively, reaching 137 thousand active Mobile App users and 194 thousand active Internet Bank customers
Conservative stance on managing the economic downturn
Operating income during the period was affected by Covid-19-related disruption to economic activity, while credit loss provisions were increased in March to reflect revised prudent macroeconomic expectations. However, the underlying credit quality remains sound with minor changes during the period.
In addition, the Bank implemented early a dedicated investment strategy to protect itself from the risk of a sharp and severe recession followed by a slow recovery, leading to a lasting global recession. By utilizing options on some of the most liquid and relevant financial market indexes, the Bank took a number of calibrated positions that would offset the effects if a severe global recession would materialize. As an open economy, the Baltics are primarily dependent on the global economy, which is reflected across the broad financial market indices. With market recovery proving stronger than anticipated, partly due to global government stimulus measures, the market value of such financial instruments has declined significantly, but so has the likelihood of a sharp and severe recession. The Bank acted with the main goal of protecting its capital vis-à-vis short-term profitability, thus securing the future of all its stakeholders.
As a result of additional allowances for expected credit losses to reflect revised macroeconomic expectations in the amount of EUR (16.8) million, and a negative impact from the tail risk positions in the amount of EUR (24.6) million, Citadele closed H1 2020 with EUR 29.0 million net loss. Net loss for H1 2020, when adjusted for the tail-risk positions, was EUR 4.4 million. Adjusted Q2 Net profit was EUR 3.1 million.
While the consequences of the Covid-19 pandemic have had a negative impact on H1 2020 financial results, the underlying business remained strong, with positive developments seen in June and going forward, and the Bank well-positioned for the rebound with new products and services. The Bank continues to invest in digital solutions and mobile banking capabilities to better service its customers, and to extend lending and credit support to customers through the pandemic and onwards.
Citadele continues to operate with strong capital and liquidity ratios: CAR of 21.3% and LCR of 403% as of 30 June 2020. The Bank’s management team continues to proactively assess and evaluate potential business opportunities in the current environment, with investments to further support the banking sector and local economy. The acquisition of UniCredit Leasing is also expected to be completed in the second half, reflecting the Bank’s strong financial soundness and aspiration to becoming a Baltic champion.